Help now offered to some who owe more than home is worth

The Obama Administration is trying to throw another lifeline to homeowners suffering from underwater mortgages– those who, due to adjustable rate mortgages, refinancing, or bottoming property values, now owe more in mortgage payments than their house is worth.

New rules announced by President Obama this week would offer incentives for banks to refinance those underwater loans currently insured by the government entities Fannie Mae and Freddie Mac.

The new rules under the Home Affordable Modification Program (HAMP) would only apply to those responsible owners who have kept up with their monthly payments, regardless of how much they owe. Under previous HAMP rules, refinancing was only offered to those owed within 125 percent of their property’s value.

“I think it’s going to be a good thing,” president-elect of the South Carolina Mortgage Brokers Association James Fleshman said, “It’s not going to solve everybody’s problem, but it’s definitely a step in the right direction.”

The plan was part of President Obama’s Jobs Act, which is stalled in Congress. The administration decided this week to start this particular program independent of Congress.

Right now, banks are nervous to refinance underwater loans from other lenders because they do not want to take on the risk. Fleshman explains the new rules would encourage one bank to refinance another’s loan while Fannie Mae and Freddie Mac instead assume the risk. Fleshman says it also benefits the homeowner, who is now more likely to keep their house, “If you’re underwater, you can’t refinance, (and) you feel like you’re paying too much, frequently those people would just get fed up and they’d leave the house.”

However, opponents of the plan point out taxpayers would be on the hook for any lost payments, since Fannie Mae and Freddie Mac are viewed as holding the debt under any new refinancing deal. The conservative group Americans for Limited Government says it could cost those entities up to $85 billion per year in uncollected interest for which taxpayers would likely be on the hook. Fannie Mae and Freddie Mac have already received more than $160 billion in bailouts the past three years.

But, Fleshman says taxpayers are already involved, since Fannie and Freddie would be stuck with the losses if the homeowner defaults.

Opponents also say only a small percentage of homeowners would be eligible for the program. “Those who qualify will still owe more on their homes than they are worth. They will just have a slightly lower interest rate,” ALG President Bill Wilson said in a statement, “It’s a bribe. The Obama Administration is attempting to shore up its wilting reelection prospects by throwing money at favored constituencies.”